Traders are content with their approach today after a flat trading session over on Wall Street yesterday. There wasn’t
much action over in Asia as well, and this is despite the fact that the Bank of Japan kept the powder dry- the bank left
the interest rate unchanged.
No surprise there and this is the reason that we have not seen much movement in the dollar-yen pair. The bank did
acknowledge the spill over effect of slower growth over in the US and China due to the ongoing trade war between the US
and China. It is in this essence that traders have started to bet on the possibility of a dovish monetary policy from
But for now, everyone is focused on one important event, the Federal Reserve’s monetary policy decision. It is ironic
that market participants do know that the Fed is going to cut the interest rate during this meeting but still they are
not willing to jump in the ring. The preference among them is to stay on the side line because you can never be hundred
percent certain about the Fed monetary policy decision.
The chief reason that investors are reluctant to bet on the market is that they are not sure how dovish the Fed is going
to be in their statement. The only thing that they can do is to pay extra attention to economic numbers and try to make
sense out of that.
Thus, the upcoming US core PCE data commands some extra attention. Fed has paid extraordinary attention to Core PCE data
and it is their preferred matrix to measure inflation. The expectations are that this number will come in at 1.7%,
slightly higher from its previous reading of 1.6%. Remember, the Fed’s target rate is 2% but this is only one of the
measure, so even if the number jumps more one tenth of one percent, it would not take the interest rate cut off the
Closer to home, it is all about Sterling’s pain and it seems that the path of the least resistance for Sterling is
skewed to the downside. Traders are betting for the price to come close to an area which the price hasn’t visited since
the Brexit referendum day. Thanks to the country’s new Prime Minister, Boris Johnson, who is trying to show the EU that
he is not afraid of no deal Brexit. His first order as a prime minister was to prepare for the no deal Brexit.
Obviously, the new prime minister wants to limit the damage but this is an uncharted territory and one can never prepare
for such. The best way to fight this is to remove the original problem out of the equation that is either give public
another chance to vote on referendum or to work with the EU to minimise the damage .
Nonetheless, the old trick is still working that is the weakness in Sterling is pushing the FTSE 100 higher and this is
the chief reason that we saw the index gained some points yesterday.